FHA vs. Conventional Loan: Which Is Better?

The type of mortgage you use to buy your home is a major decision. Both conventional and FHA loans are common, but they have different eligibility requirements and costs. Learn the difference between FHA and conventional loans and how to determine which is best for you.

FHA loan vs. conventional loan: What’s the difference?

FHA loans and conventional loans are two types of mortgages you can use to buy a house. But they have different eligibility criteria, loan limits, insurance requirements, and more. Here’s an overview of each option.

FHA loan

FHA loans are mortgages issued by private lenders but insured by the Federal Housing Administration (FHA). Credit score requirements are less stringent for FHA loans (a minimum 500 FICO score with a 10% down payment; 580 with a lower down). Down payment requirements may be lower too for borrowers without strong credit or finances, which can make them easier to qualify for. 

But mortgage insurance premiums are required for all FHA loans, adding significant cost. Further, PMI is charged for the duration of the loan’s term when the down payment is less than 10% — with a conventional loan, PMI can generally be removed once your loan-to-value is 80%.

“FHA can be a great option for buyers who have solid income but may not have perfect credit or a large down payment,” says Matthew Martinez, founder and managing broker at Diamond Group Real Estate. “I see FHA work well for first-time buyers, buyers with limited savings, or buyers who need a little more flexibility with qualifying. It can open the door to homeownership for people who may not fit neatly into a conventional loan box.”

Conventional loan

Conventional loans are not insured by a government agency. They are the most common type of mortgage but can be harder to qualify for due to higher credit score requirements, primarily. They fall into two categories: 

• Conforming loans: These comply with certain government requirements, including a maximum loan limit of $832,750 in most of the U.S. (as of 2026).
• Non-conforming loans: These don’t meet one or more Fannie Mae or Freddie Mac purchase requirements. Jumbo loans (meaning larger than usual) are a common type of non-conforming loan, and maximum loan amounts and eligibility standards vary by lender. 

Conventional loans are also more flexible. Unlike FHA loans, you can use a conventional loan to buy a secondary home or investment property. 

You can also make a down payment as low as 3%, although private mortgage insurance is typically required if you put less than 20% down. You can have PMI removed once your loan-to-value ratio hits a specific threshold — the FHA requires mortgage insurance premiums (MIP) throughout the life of the loan if your initial down payment is less than 10%. 

How do requirements compare?

Qualifying for an FHA loan is generally easier than qualifying for a conventional loan, but FHA loans may have stricter standards for how they can be used. Here’s an overview comparing FHA and conventional loan requirements.

How do costs compare?

FHA loans may initially seem more affordable than conventional loans. As of July 2026, according to Mortgage News Daily, the average interest rate for a 30-year conventional loan was 6.77%. Meanwhile, the average interest rate for a 30-year FHA loan was 6.33%. 

However, this doesn’t show the full picture. “Most FHA borrowers don’t realize their true cost until they are hit with mortgage insurance premiums,” says Chloe Shubin, VP of Operations and Strategy at Griffin Funding. 

“In addition to an upfront premium of 1.75% of the loan amount, FHA borrowers who put less than 10% down are required to pay annual premiums for the life of the loan.” These annual premiums can range from 0.15% to 0.75% of the base loan amount. For most standard 30-year FHA purchase loans, however, the current annual MIP rate is 0.55%.

While conventional loans have private mortgage insurance, it generally terminates automatically when the scheduled balance reaches 78% of the original value and the loan is current. “That difference can equal tens of thousands of dollars over the long term for a buyer who plans to stay in their home,” says Shubin.

For example, say you’re purchasing a $300,000 house with 5% down. 

• If you finance the remaining $285,000 with an FHA loan, you’d owe an upfront mortgage premium of about $4,988. It can generally be paid at closing or added to the loan balance. Assuming you add the upfront premium to the balance and the standard 0.55% annual MIP rate applies, the initial annual premium would be approximately $1,600, or about $133 per month. The dollar amount gradually declines as the loan balance falls.
• If you finance the remaining $285,000 with a conventional loan, you’d have no upfront insurance premium and would only have to pay PMI (which is often less than FHA MIP) until the principal balance reaches 78% of the home’s original value (or 20% if you request PMI removal). 

What are the pros and cons?

Here are some pros and cons to consider when comparing FHA vs. conventional loans:

FHA loan pros and cons

Details on the pros

• Lower credit score requirement: You can qualify for an FHA loan with a score as low as 500.
• Low down payment requirement (for credit-challenged borrowers): You can put as little as 3.5% down if your credit score is 580 or higher. For a $300,000 house, that's just a $10,500 down payment. Conventional loans also have low down payment requirements, but you typically need better credit to qualify.
• Lower interest rate: FHA loans tend to have lower interest rates compared to conventional loans. According to Mortgage News Daily, the average FHA and conventional loan interest rates were 6.33% and 6.77%, respectively, at the time of writing.
• May allow earlier qualification after bankruptcy: For example, a borrower in Chapter 13 may potentially qualify after making at least 12 months of satisfactory plan payments, while a Chapter 7 bankruptcy generally requires a longer waiting period.

Details on the cons

• Upfront and annual mortgage insurance premiums: All FHA loans include mortgage insurance premiums, and annual premiums are required for the life of your loan if your initial down payment was under 10%.
• Higher total cost: Because FHA loans tend to have higher fees, they often cost more — especially for borrowers with good credit who could qualify for competitive conventional loan rates. 
• For primary residences only: You generally can’t use an FHA loan to purchase a second home or investment property.
• Lower loan limits: FHA loan limits are lower than conventional loan limits. As of 2026, you can borrow up to $541,287 using an FHA loan in most of the U.S.
• Stricter property standards: FHA appraisals include HUD minimum property requirements, which can lead to required repairs in situations where a conventional appraisal might not.

Conventional loan pros and cons

Details on the pros

• Low down payment requirement (for qualified borrowers): You may be eligible for a conventional loan with as little as 3% down if you meet certain eligibility requirements. These might include being a first-time homebuyer or having a good credit score.
• Can remove mortgage insurance with enough equity: You may request PMI cancellation when the principal balance reaches 80% of the home’s original value. PMI generally terminates automatically when the scheduled balance reaches 78% of the original value and the loan is current.
• Flexible property use: Most lenders offer conventional mortgages to purchase a primary, secondary, or investment property.
• No upfront mortgage insurance fee: Unlike FHA loans, there’s no upfront conventional mortgage insurance charge to pay at closing.

Details on the cons

• Higher credit score requirement: A credit score of at least 620 is not a requirement to qualify for a conventional mortgage but you’re more likely to qualify if you meet (or ideally exceed) it.
• Higher interest rates: Conventional mortgages may have higher interest rates for borrowers with poor or fair credit compared to FHA loans.

Which loan should you choose?

Generally speaking, you should choose the loan that is most beneficial based on your financial circumstances.

You might choose an FHA loan if:

• Your credit is lower than 620.
• You have little money to put down.
• You’re buying a primary residence.
• You had a bankruptcy within the last 4 years.

You might choose a conventional loan if:

• You have good or great credit.
• You have 20% to put down (or are willing to pay PMI until you have 20% equity).
• You’re buying a secondary or investment property.

Martinez recommends asking your lender for a side-by-side comparison of the cost of an FHA vs. a conventional loan. Consider “not just the rate, but the total cash to close, monthly payment, mortgage insurance, estimated taxes and insurance, and what the loan looks like over the next five to seven years.” 

As Martinez explains, “the right loan is not always the one with the lowest down payment. It is the one that gives the buyer the best chance of owning the home without becoming financially stretched.”